According to the naira-for-crude sale deal, the Nigerian National Petroleum Company Limited has delivered four cargoes of crude oil to the Dangote Petroleum Refinery, the Federal Government and refinery officials said Tuesday.
When the government began selling petroleum to local refineries in the local currency, it was learned that the four cargoes of crude had arrived at the refinery in the previous three weeks.
According to our correspondent’s informed sources about the local crude sale agreement, the refinery is still awaiting more cargoes of crude oil from NNPCL, the company in charge of overseeing the nation’s petroleum resources.
Additionally, they stated that the $20 billion plant in Lekki was now scheduled to start selling refined Premium Motor Spirit, generally known as gasoline, directly to local dealers.
According to the official, the program began with the Dangote refinery, which is currently Nigeria’s only facility that produces gasoline.
According to a senior refinery official who spoke to our correspondent, the first part of the naira-crude sale arrangement will expire after six months unless the Federal Government renews it.
According to the official, she was unable to determine the price per barrel of crude oil.
“The exchange of naira for crude has begun. Four shipments have arrived at the Dangote refinery thus far, and more are on the horizon. In the last three weeks, the refinery has received the four shipments. In the upcoming week, we still anticipate receiving more goods.
Remember that this initial stage of the naira-crude sale is only going to last for six months. At the conclusion of the first six months, the government may choose to renew it or not. Therefore, we are unsure of what will transpire after the initial six months.
Remember how the refinery, which can process 650,000 barrels per day, faced crude difficulties when it first started up a few months ago?
Alhaji Aliko Dangote, the president of the Dangote Group, had sounded the alarm, claiming that certain foreign oil firms intended to undermine the investment by declining to provide crude.
The Dangote Group had claimed that the IOCs had insisted on using their foreign agents to sell crude oil to its refinery.
It stated that because the trading arms supplied cargoes for $2 to $4 per barrel, above the official price, the local price of petroleum would keep rising.
The group also said that when it comes to selling the crude they produce in Nigeria, global oil companies appear to be giving preference to Asian nations.
The group maintained that the refinery was still being frustrated by the IOCs even after the Nigerian Upstream Petroleum Regulatory Commission intervened in July.
“If the Domestic Crude Supply Obligation guidelines are diligently implemented, this will ensure that we deal directly with the companies producing the crude oil in Nigeria as stipulated by the Petroleum Industry Act,” stated Mr. Devakumar Edwin, Vice President, Oil & Gas, Dangote Industries Limited.
Edwin maintained that the company’s demands for locally produced petroleum as feedstock for its refining process had been repeatedly turned down by IOCs doing business in Nigeria.
He emphasized that the official price set by the NUPRC was sometimes $2 to $4 (per barrel) higher than the cargoes provided to the oil corporation by the trading arms.
For instance, in April, we paid $96.23 per barrel (not including transportation) for a shipment of Bonga crude grade. The pricing included a $1 trader premium, a $5.08 NNPC premium, and a $90.15 dated Brent price. We were able to purchase WTI that same month at a dated Brent price of $90.15 + $0.93 trader premium, which included transportation. Some merchants then began requesting that we charge them up to $4 million more than the NSP for a shipment of Bonny Light after the Nigerian National Petroleum Company Limited reduced their premium after receiving criticism from the market that it was too excessive.
The price that was given to us is far greater than the market rates that these platforms measure, according to data from sites like Platts and Argus. In July, Edwin urged the commission to reconsider the pricing issue, saying, “We recently had to escalate this to NUPRC.”
At a July 29 Federal Executive Council meeting, President Bola Tinubu, alarmed by the controversies, suggested selling crude to regional refineries in naira.
Tinubu’s plan to sell crude to the Dangote refinery and potential future refineries in local currency was approved by the Federal Executive Council.
Using the Dangote refinery as a test, the FEC authorized offering Nigerian refineries the 450,000 barrels intended for domestic use in naira.
“The exchange rate will be fixed for the duration of this transaction,” stated Bayo Onanuga, the president’s media aide, in July.
Whether or not the Federal Government had fixed the currency rate in this particular transaction with Dangote could not be quickly verified.
According to operators, if the government sells oil to nearby refineries and fixes the exchange rate at N1,000 to the dollar rather than N1,600, the current price of PMS would plummet.
According to our source, the Edun-led implementation committee stated that the sale of crude oil in naira started on October 1st, as the committee had planned.
The committee declared on September 13, 2024, that the Federal Executive Council had authorized the purchase of petroleum products in naira and the sale of crude to nearby refineries in naira.
The committee had announced that starting on October 1, NNPC would start supplying the Dangote refinery with roughly 385,000 barrels of crude oil per day, which would be paid for in naira.
This implies that NNPC is to deliver around 11.5 million barrels of crude oil to the Dangote refinery monthly, and based on the arrangement, the plant will discharge equal amounts of refined diesel and petrol to the domestic market also in naira.
The refinery is anticipated to sell aviation fuel, diesel, and gasoline to marketers in naira after receiving four cargoes.
Marketers respond.
The delivery of crude to the Dangote refinery will resolve grievances of insufficient PMS supply to the NNPC and other marketers, according to Chinedu Ukadike, National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria.
Allowing Dangote to obtain enough crude to refine petroleum products for us is a really wonderful gesture. I am aware that Dangote is not generating enough, according to the NNPC. As a result, PMS and other crude oil byproducts will be sufficient now that they have given Dangote up to four cargos. And since a shortage of crude oil will result in a shortage of refined products, we will no longer be complaining about a lack of supplies,” Ukadike said.
Regarding pricing, he proposed that supply and demand will eventually determine PMS’s cost.
“Let the price be set by the forces of supply and demand. I am aware that these products will eventually begin to decline rather than increase. “I’m positive,” the IPMAN representative said.
Imports of PMS decline
The introduction of local supply from the Dangote refinery appeared to dampen export desire, according to S&P Global Commodity Insights ship-tracking data, which also showed a steep decline in gasoline exports to Nigeria in the first two weeks of October.
In the first week of the month, which ended on October 6, just 280,400 barrels of gasoline and blendstock were shipped to Nigeria, compared to a weekly average of 1.3 million barrels in August, according to data from S&P Global Commodities at Sea.
Only 290,567 barrels of gasoline left Antwerp for delivery to Lagos in the week ending October 13, according to one product tanker that claimed carrying gasoline to Nigeria. Compared to the 12 cargoes shipped in the first half of August and September, respectively, these two October cargoes are much smaller, according to S&P Global.
With the establishment of its own domestic refining capacity, the decline in export activity marks the first disturbance to a previously established flow, primarily from Northwest Europe to West Africa.
Nigeria, Africa’s largest demand hub, has traditionally imported between 200,000 and 300,000 barrels of gasoline per day to meet the majority of its fuel supply due to the lack of its own domestic supply chains. This dependency was intended to be addressed by Africa’s richest man, Aliko Dangote, who opened a new refinery in January.
However, merchants have noted a possible shortage in supply as local production is still unable to meet consumption of over 300,000 b/d, as supplies to Lagos seem to be declining proactively.
The Dangote refinery was only able to provide 317 million liters of the 1.065 billion liters it asked between September 15 and October 20, according to a document headed “Summary of Volume Loading” that is purported to have come from the state oil firm.
Even though the refinery aims to produce 30 million liters of PMS per day, another official stated that it is increasing output and already has over 245 million liters in storage tanks.
As a very big single-train refinery, the plant is still susceptible to outages and interruptions, but a quicker-than-anticipated ramp up would accelerate pressure on global gasoline cracks in the Atlantic Basin to as early as the first quarter of 2025.
By 2026, the refinery is expected to displace about 260,000 barrels per day of gasoline flows from Europe to West Africa, according to Commodity Insights. Meanwhile, sweet hydrocracking margins are not expected to significantly improve from an average of minus $1.50/b through Q4 2024 in Q1 2025, according to S&P Global.
The Independent Petroleum Producers Group, which represents oil producers, issued a warning against being compelled to sell crude oil to the Dangote Refinery and other nearby refineries in Nigeria during the crisis of crude supplies.
In order to alleviate the current scarcity of crude oil that local refiners are facing, which is affecting the availability of local products in various regions of Nigeria, the IPPG further urged the NNPC to redirect its allotted crude oil quantities to Dangote Refinery and other nearby refineries.
In an August 16, 2024, letter to Gbenga Komolafe, the Chief Executive of the NUPRC, IPPG Chairman Abdulrazak Isa stated that the NNPC should use its allotted 445,000 barrels per day intervention crude oil volume to salvage the current situation, as it has done in numerous previous cases.
Isa claimed that certain IPPG members already owned and/or supplied crude oil to nearby refineries, but he maintained that the NNPC was well-positioned to use its statutory crude allotment to fulfill local domestic consumption and alleviate the current shortage of crude oil that local refiners were facing.
In order to meet local demand, NNPC has historically maintained an intervention crude oil level of 445 kbopd. This amount has long been used to import refined goods for domestic use through a variety of swap methods.
He said, “This dedicated volume should be reserved for all domestic refineries under a price hedge mechanism that can be provided by a suitable financial institution such as Afrexim Bank, since there is now domestic refining capacity to meet consumption.”
“Any national production above this allocated volume should be treated strictly as export volumes, adhering to the willing buyer, willing seller framework of the international market,” Isa insisted, citing the need for refiners to export excess products that exceed domestic demand in order to boost foreign exchange earnings.
In particular, IPPG claimed that some of its members had received letters from the Dangote Refinery regarding nominations for crude supplies for October. The group criticized the approach, claiming that it put them under obligation and went against the spirit of the Petroleum Industry Act 2021’s willing-buyer, willing-seller framework.
He declared that the goal of improving the nation’s petroleum value chain should be carried out within the parameters of the law and current commitments, and he expressed confidence that all parties involved could come to a mutually agreeable solution without endangering the current business agreements, financial interests, and business models of each sector of the oil and gas industry.
It is crucial that no private sector company is excessively forced into agreements that could effectively subsidize another within the oil and gas value chain under any pretense whatsoever, even if we completely support and applaud Nigerian businesses’ efforts to increase domestic refining capacity.
Refiners must arrange and carry out long-term crude oil Sales and Purchase Agreements with producers and their marketing agents in accordance with this willing-buyer, willing-seller structure. The IPPG chairman stated that these contracts should adhere to industry best practices and have normal terms of one to five years.
Concerning the possible effects on the economy, particularly the foreign exchange earnings from royalties and taxes, he added that some of them also received allocation letters from NUPRC for the supply of specific volumes of crude oil to the domestic market for the second half of 2024.
In contrast to actual local consumption needs, the committee observed that the existing distribution process seems to be based on a matrix of producers’ production predictions, technical permissible rates, and domestic refineries’ crude oil requirements. This presents serious issues since it implies that refiner demands—which can be higher than those required for domestic consumption—are being used to decide allocations.
Such a strategy can unfairly penalize producers and result in inefficiency. Thus, he stated in August, “Refineries that have more capacity than is needed locally must not take advantage of the Domestic Crude Oil Supply Obligations to the detriment of oil producers and other stakeholders, including the Government.”
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